One more question us treasuries accrued interest

[PMS]

Doing 2024 taxes and TT has yet to make this straightforward. Sigh.

I want to follow the advice above about moving Treasury Obligations interest to a separate 1099-INT, but not sure which box to use. I am guessing Box 5 (Investment Expenses) but hoping someone can confirm this or point me to the right Box

[LindaS5247]

Box 3 on Form 1099-int is for Interest on U.S. Savings Bonds and Treasury Obligations. The instructions for Form 1099-INT state to enter interest on U.S. Savings Bonds, Treasury bills, Treasury notes, and Treasury bonds. 

Box 5 is for For single-class REMICs only, see Box 5. Investment Expenses under Rules for REMICs, FASITs, and Issuers of CDOs. This amount is not deductible.

Click here for Instructions for Forms 1099-INT and 1099-OID (01/2024)

The accrued interest is taxable to the seller, whereas the interest that is earned from the date of purchase to the end of the year is taxable to the purchaser.

It sounds like you are issuing a Form 1099-INT, but I am not sure. You state you want to "follow the advice above", but it is not there to refer to. If this does not help, please come back to Community and provide some additional information so we may better help you.

[PMS]

Regarding my US Treasury Obligations my 1099-INT shows interests I earned but also Accrued Interest that I paid to the seller. The provider of this 1099 told me that my earned interest was not adjusted for the interest I paid. So I believe I am entitled to reduce my total interest by the Accrued Interest I paid.

I was able to get the numbers I expected by checking "I need to adjust the interest reported on my form." on the screen that follows 1088-INT screen, and on the next screen entering the accrued interest amount and selecting "My accrued interest" from the "Reason for adjustment" drop down.

If you think my belief that the Accrued Interest should be creditable back to me is incorrect, let me know. This seems like a reasonable assumption, but then none of the 1099 provider, the IRA instructions nor Quicken made this very straightforward. 

[PMS]

As I mentioned in my previous post, I am going ahead with my assumption about reducing my Federal Interest based on the accrued interest I paid for these US bonds. Now I ran into another problem. While doing my CA taxes I see that TT subtracts a smaller amount from my interest than the adjusted federal interest. I tried clicking on Line 1, Column B on the CA Interest and Dividend Adjustment Worksheet, but this does not link me to anything (which is annoying). Can anyone explain this?

[Mike9241]

maybe the easiest way to correct this issue is to put the US interest and accrued interest paid on its own 1099-INT. 

[baldietax]

@PMS as @Mike9241 says you may need to split the 1099 entry into TT as there is a limitation with TT applying accrued interest, you can only apply one adjustment of that type to a single 1099-INT.  If you have multiple income types (Box 1,3,8) on one 1099-INT then it doesn't know how to apply the accrued interest and will pro-rata it over everything which may reduce the accrued being applied to the Box 3 interest and affect your CA subtraction.  The only way to resolve is it to split up the 1099-INT by box (along with their respective premium amounts in Box 11-13) and enter the accrued interest adjustment that applies for each.

That said, in this other thread someone else was struggling with the same issue for CA state tax even after splitting the 1099.

https://ttlc.intuit.com/community/taxes/discussion/tax-exempt-from-california-state-from-u-s-treasur...

If 1099s are doing weird things in TT it's also worth trying to re-input and delete the old one, especially if it was imported.

You are correct btw in subtracting the accrued interest you paid.  Some brokers do a better job of tracking than others and may provide additional info in the 1099 statement for accrued interest paid during the tax year, but they are not obliged to track this against the coupons you receive in the same way they calculate and report premium/discount.  Unfortunately goes with the territory of holding individual bonds.  Also be aware if you buy a bond after the last coupon payment of the year then you need to 'carry over' the accrued interest to the tax year you receive your first coupon payment.

Publication 550 from the IRS is a good official reference for this, see "Accrued Interest On Bonds"

https://www.irs.gov/pub/irs-pdf/p550.pdf

Accrued interest on bonds.

If you received a Form 1099-INT that reflects accrued interest paid on a bond you bought between interest payment dates, include the full amount shown as interest on the Form 1099-INT on Schedule B (Form 1040), Part I, line 1. Then, below a subtotal of all interest income listed, enter “Accrued Interest” and the amount of accrued interest you paid to the seller. That amount is taxable to the seller, not you. Subtract that amount from the interest income subtotal.

Not a CPA/Expert - just my 2 cents dealing with this issue in TT

[PMS]

Thanks for the detailed response on this, Mike. I checked in Excel and the accrued interest pro-rated for the 1099-INT Box 3 value comes within a few cents of the TT CA subtraction (gotta wonder why it would be even a few cents off, but...). Fortunately this 1099-INT only has values in Boxes 1 and 3, so as a quick test, I zeroed out the Box 1 value and now Line 1, Column B on the CA Interest and Dividend Adjustment Worksheet shows the full value of my accrued interest. Now all I have to do is split this 1099-INT into ox 1 and Box 3 version, and I should be good to go.

[PMS]

Rather than splitting 1099-INT I took an easier way and just over-rode the value on the Schedule CA Line 2, Column B in the TT Forms.